In the early 1990s, Michael Kremer was looking for a simple test case to perform one of the first randomized evaluations of a policy intervention in a developing country. For this first attempt, he wanted a noncontroversial example in which the intervention was likely to have a large effect. Textbooks seemed to be perfect: Schools in western Kenya (where the study was to be conducted) had very few of them, and the near-universal consensus was that the books were essential inputs. The results were disappointing. There was no difference in the average test scores of students who received textbooks and those who did not. However, Kremer and his colleagues did discover that the children who were initially doing very well (those who had scores near the top in the test given before study began) made marked improvement in the schools where given out. The story started to make sense. Kenya's language of education is English, and the textbooks were, naturally, in English. But for most children, English is only the third language (after their local language and Swahili, Kenya's language), and they speak it very poorly. Textbooks in English were never going to be very useful for the majority of children... This experience has been repeated in many places with other inputs (from flip charts to improved teacher ratios). As long as they're not accompanied by a change in pedagogy or in incentives, new inputs don't help very much.The book covers a wide scope of randomised controlled trials (RCTs) in developing countries, which is exactly the work for which Banerjee and Duflo (and Kremer) won the Nobel Prize. They don't just limit themselves to discussing their own research though. The reader will receive a thorough grounding in the state of knowledge (or at least, the state of knowledge in 2011, as this is a field that has been moving quickly). If you want to gain an understanding of why the authors won the Nobel Prize and what their contributions have been, this is a good place to start. All of the examples are linked through Banerjee and Duflo's philosophy, which can be summarised as:
...attend to the details, understand how people decide, and be willing to experiment...Banerjee and Duflo don't shy away from the criticisms of RCTs in development economics either. They engage with critics like William Easterly and Angus Deaton, and the criticisms that small experiments don't necessarily scale up well, or are not useful unless they identify or test some underlying theory that can be useful in a wider context. Unlike many authors, Banerjee and Duflo are quite realistic about their ambitions, but at the same time they have a strong counter-argument:
We may not have much to say about macroeconomic policies or institutional reform, but don't let the apparent modesty of the enterprise fool you: Small changes can have big effects. Intestinal worms might be the last subject you want to bring up on a hot date, but kids in Kenya who were treated for their worms at school for two years, rather than one (at the cost of $1.36 USD PPP per child and per year, all included), earned 20 percent more as adults every year, meaning $3,269 USD PPP over a lifetime... But to scale this number, note that Kenya's highest sustained per capita growth rate in modern memory was about 4.5 percent in 2006-2008. If we could press a macroeconomic policy lever that could make that kind of unprecedented growth happen again, it would still take four years to raise average incomes by the same 20 percent. And, as it turns out, no one has such a lever.I learned a lot in reading this book. This included why microinsurance doesn't seem to work even when microfinance does (there is an entire chapter on this, but it boils down to adverse selection and moral hazard, which is exactly the problem of insurance in the rest of the world), and why there are so many unfinished buildings in developing countries (the poor use them as a way of committing to saving, because subtracting bricks that have been partially built into a house is much more difficult than raiding a savings account). I even learned about a real-world example of a Giffen Good (my ECONS101 tutors will know that I have been a Giffen Good skeptic for a long time), which comes from this 2008 paper (ungated version here).
The book doesn't strike me as a textbook, although I know some who are using it as such. It is very empirical, and that is a good thing. This is an excellent place to start, if you want to understand the economics of the poor, and the state of research as it was in 2011. Highly recommended, and I look forward to also reading their new book, Good Economics for Hard Times.
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